AN EVALUATION OF THE EFFECT OF ACCOUNTING RECORDS ON THE PERFORMANCE OF SMES IN NIGERIA A STUDY OF SELECTED SMES IN LAGOS METROPOLIS.
This study investigates the importance of accounting and financial records in the development of small-scale firms in Nigeria. The primary goal of the study is to investigate the importance of accounting and financial records keeping in the development of Small Scale Enterprises in Nigeria. Five operational objectives are set out for the study in order to fulfill the study’s main goal.
The survey design is used in the study to collect data through the administration of questionnaires. The data collected was examined using regression analysis in SPSS. The analysis results suggest that accounting and financial record keeping in small scale firms is important to the effective performance and profitability of the enterprises, despite the fact that not all of the selected industries maintained correct financial records.
Only 80% of the selected industries keep accurate accounting records of financial transactions using standard procedures, and the types of financial records kept include: statement of comprehensive income, cash book, journals, income and expenditure account, and workers performance and evaluation report.
The study concludes that there is a relationship between accurate and regular accounting record keeping and the profitability and performance of small scale enterprises in Nigeria, as well as between accounting record keeping and investment decision making and the development and profitability of small scale enterprises in Nigeria and other developed countries.
It is recommended that Small Scale Enterprises capitalize on the benefits of using an electronic recording system in order to improve their accounting records and boost corporate performance. Accounting, Accounting Records, Bookkeeping, and Ledger Account The Study’s Context The sheer thought of bookkeeping and accounting intimidates many prospective business owners.
In actuality, both are quite straightforward. Keep in mind that bookkeeping and accounting share two primary goals: keeping track of income and expenses, which increases the likelihood of profit, and collecting the financial information required for completing various tax forms (Burns, 1999). There is no obligation for records to be kept in a certain format as long as they accurately reflect the business’s income and expenses (Ademola 2012).
However, certain organizations are required to utilize a specific technique of crediting their accounts: the cash method or the accrual approach. Depending on the size of the company and the number of sales, one can generate their own ledgers and reports or rely on accounting services (Williams 1999).
Accounting records are defined by the Macgraw Hill Dictionary of Financial Accounting as “documenting all sources of information and evidence utilized in preparing, confirming, and/or auditing financial statements” (Macgraw Hill dictionary 2006).
Accounting records also include documentation to verify asset ownership, liability formation, and evidence of monetary and non-monetary transactions. Accounting records can take numerous forms, according to this definition, and they include: ledgers, journals, bank statements, contracts and agreements, verification statements, transportation receipts, invoices, vouchers, and so on.
However, accounting records, according to Babson (2000), might be in either physical or electronic form. Accounting bodies in various countries specify regulations for dealing with accounting records in terms of financial statement presentation and/or auditing.
Various countries have different standards, and varied industries may have different record-keeping needs. Accounting records are essential for all sorts of accounting, including financial accounting and cost accounting, as well as for many types of organizations, such as corporations and partnerships (Burns, 1999).
Accounting systems record, store, and replicate financial information about financial transaction flows and financial position. Financial transaction flows principally include inflows due to income and outflows due to expenses. Elements of financial situation, such as property, money received, or money spent, are classified into one of three categories: assets, liabilities, and equity.
Each different asset, obligation, income, and expense is represented by its own “account” within these basic groups. An account is essentially a record of financial inflows and outflows related to a specific asset, liability, income, or expense. Income and expense accounts are transient accounts because they only represent the inflows and outflows absorbed in the financial-position elements at the end of the time period (Williams 2008).
Accounting information is useful to businesses, but the availability of Research Journal of Finance and Accounting www.iiste.org is also vital. ISSN 2222-1697 (Paper) ISSN 2222-2847 (Electronic) (Online) 2016 Vol.7, No.14 44 Accounting is a social structure that aids the solution or resolution of corporate planning, organization, and control functions (Burns, 1999).
Most small-business owners prefer to hire unskilled workers, particularly administrative and accounting personnel. The result of these inexperienced accounting (clerical personnel) has only served to help small scale enterprises stagnate; some have even closed down.
In a research conducted in Lagos State on the “Causes of Death of SMEs in Nigeria,” Adebayo et al (1998) discovered that the recruitment of untrained or unskilled accounting and clerical employees was responsible for the death of 80 percent of the state’s SMEs.
This was due to the inability of untrained accounting staff to keep reliable accounting records that would withstand the test of time necessary; such personnel could not correctly assess the firm’s profit or loss by preparing a statement of comprehensive income. Small Scale Enterprises Definition What exactly are small-scale businesses? Many individuals and institutions have characterized small scale firms in various ways, using diverse yardsticks such as the number of employees, the volume of sales, the value of assets, or the volume of deposits in banks (Ademola et al 2012).
The National Economic Reconstruction Fund (NERF) designated small and medium firms by requiring projects to be sponsored by the firm to have a total fixed asset cost (including land) of less than N10 million. In terms of the small scale industries credit plan, the Federal Ministry of Industry defines a small scale firm as any manufacturing, processing, or service industry with a capital investment of less than N150,000 in machinery and equipment alone.
A small business, according to Atijosan (1998), is any manufacturing, processing, or service industry that meets any or all of the following criteria: Capital, but ignoring the cost of land and N750,000 Staff numbers should not exceed 50 people, and the company should be entirely owned by Nigerians.
A manufacturing, processing, or service industry that exceeds the stated units of investment is relatively tiny in comparison to the typical size of facility, and the technology is fairly labor intensive. According to Ademola et al. (2012), small scale firms are catalysts for global economic growth and development, having dominated the industrial sectors of both developed and developing countries.
According to Aruwa (2006), Nigeria’s industrial sector is dominated by small and medium-sized enterprises (SMEs), which account for 90 percent of all enterprises, as compared to other developed countries where more than 98 percent of all enterprises belong to the SME sector.
For example, about 80 percent of the total industrial labor force in Japan is SME, 50 percent in Germany, and 46 percent in the United States are employed in smaller firms. The Central Bank of Nigeria defined small scale enterprises as any business with a total asset investment of less than one million, an annual turnover of less than one million, and fewer than fifty employees (World Bank Mapping 2001).
In 2001, the International Finance Corporation (IFC) and the Corporate Affairs Commission added to the evidence that Nigeria’s industrial sector is dominated by SMEs, which employ around 90% of the workforce while employing less than 50% of the workforce (HPACI 2002).
Given the importance of SMEs in Nigeria’s industrial sector, the performance of the Nigerian economy is projected to be somewhat dependent on the success of the SMEs. Nwoye (1991) said unequivocally that SMEs are economic growth and development drivers in Nigeria.
He believes that with so many SMEs, Nigeria has enormous potential for success and expansion, as well as large-volume sales of commodities. Despite the fact that some of them have sufficient capital, many of them collapse due to inadequate financial management procedures.
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